Legislators saw profits on agency they policed

Four Texas House insurance panel members got commissions, fees on Ike-related policies, lawsuits.

By Lise Olsen and Purva Patellolsen@chron.com

Updated 1:55 am, Monday, March 14, 2011

Texas lawmakers overseeing insurance issues pocketed tens of thousands of dollars in windstorm-related fees and commissions, even as their committees were responsible for overseeing the state-run Texas Wind Insurance Association — an agency under fire for being inefficient and allegedly corrupt.

TWIA, which picked up the tab for much of Southeast Texas's Hurricane Ike damage, remains the subject of 2,000 lawsuits, a fraud investigation by the district attorney in Austin and, as of last month, direct oversight by the state Department of Insurance.

Four of the nine lawmakers who served on the House of Representative's 2009-10 Insurance Committee — including one from San Antonio — benefited from hurricane-related insurance sales and litigation. They were compensated in different ways, including mediation fees, work on hundreds of civil cases involving TWIA and a state-created sister insurer, commissions on policy sales and shares of multimillion dollar legal awards, according to records obtained by the Houston Chronicle.

Overlaps between legislators' public and private roles are ubiquitous in Texas, activists say. But the scope of the Insurance Committee entanglements with TWIA compound the anger of property owners such as Dana Turner, who sued TWIA to pay a claim after Ike razed her Crystal Beach home to the slab.

“They're a bunch of crooks,” Turner said. “They should be working for us. They should be looking out for our interest, not theirs, just like TWIA should have been looking out for our interest.”

Virtually none of those legislators' storm-related profits were revealed in required financial disclosures because of loopholes in the law and lax deadlines. In fact, reports on legislators' 2010 financial activities won't even be due until April 30 — near the end of the current legislative session.

Even the chairman of the committee says he had no idea of the extent of the lawmakers' work related to TWIA and said he believes disclosure should be improved.

Rep. Craig Eiland, D-Galveston, current vice chairman of the House Insurance Committee, got $627,000 in legal fees by participating in a class-action lawsuit against TWIA last year that involved homeowners who lost everything down to the slab, according to documents.

He also shared another $11.5 million in legal fees awarded to him and six other law firms as part of another Ike-related settlement, and participated in dozens of other TWIA cases.

In an e-mail, Eiland said he believes his Insurance Committee leadership role is appropriate given his expertise and the coastal communities he serves. He said no legislation handled by the committee has posed a conflict with his legal work.

“I represent people individually at the courthouse, and I represent two counties collectively at the Capitol,” he said. “Representatives of the 14 (Texas) coastal counties are vigilant regarding TWIA's funding and rate issues. Since there have been no significant storms prior to Ike, ‘claim issues' have never really been a big part of the discussions.”

The 2009-10 House Insurance Committee members were assigned to take the lead on bills involving regulation of insurers in the immediate aftermath of Hurricane Ike — including state-created programs such as TWIA.

In the meantime, TWIA itself has descended into chaos: Created by the state as an insurer of last resort for coastal county homeowners, the agency almost went broke, faces an ongoing criminal probe and allegations that its managers hired family members and violated its own rules.

Bills for its failures — and for multimillion dollar civil settlements — could be passed on to every property owner in the state in the form of rate increases.

The oversight committee is led by another House Insurance Committee member, Rep. Larry Taylor, R-Friendswood. Taylor, an insurance agent, made nearly $390,000 selling TWIA policies from 2006 to 2010, records show.

Though Taylor has been critical of legal fees lawyers made in TWIA cases, he sees no conflict posed by his TWIA commissions — which represent about 20 percent to 25 percent of his business.

“I don't do things as a legislator that would benefit or be of detriment to just myself. That would be a problem if I tried to benefit myself with legislation passed,” he said, noting he has tried to curb TWIA's ability to raise rates in the past, something that could hurt his commissions.

Records released by TWIA show that two other members of the 2009-10 House Insurance Committee profited directly or indirectly from state-created insurance programs: Rep. Todd Hunter, R-Corpus Christi, and Rep. Trey Martinez Fischer, D-San Antonio.

Hunter, an attorney, has been paid to mediate TWIA-related cases. He got $65,000 as mediator in the so-called “slab” class-action settlement in 2010 and $8,750 for other windstorm-related cases, according to documents and interviews.

Hunter has a long association with TWIA: From 2003 to 2007, when he was out of the Legislature, he served as its paid lobbyist, a contract with annual compensation of up to $200,000, records show.

Hunter, who was re-elected to the Legislature in 2008, refused to comment on his pay or role as TWIA mediator.

“As a ... House member and past lobbyist, I was very informed and educated on insurance issues. I am always open and fair in any capacity that I serve,” Hunter said in an e-mail.

Martinez Fischer, a San Antonio lawyer, worked as a contract attorney for The Mostyn Law Firm, a huge Houston-based civil litigation firm that worked with Eiland and other attorneys on class-action cases against TWIA settled in Galveston County last year.

Public records show The Mostyn Law Firm earned more than $6 million in related settlements in 2010, although Martinez Fischer said he did not receive compensation directly from TWIA cases.

“He did not ever work on any TWIA litigation during his counsel relationship with The Mostyn Law Firm or during his tenure on the Insurance Committee, nor did he receive compensation directly or indirectly related to TWIA litigation,” said Christina Gomez, a spokeswoman for Martinez Fischer.

However, court records show Martinez Fischer served as attorney in at least one TWIA case in Galveston County and has more than 100 pending civil suits in Harris County involving hurricane losses, including 50 people who sued another state-created insurance program for noncoastal homeowners who can't find insurance elsewhere — the Texas Fair Plan Association.

Gomez did not respond to a follow-up question about those cases.

In an interview, Steve Mostyn said Martinez Fischer accidentally signed off on one TWIA case but didn't actually work on it. Mostyn said the storm-related cases Martinez Fischer has handled for his firm involved claims by Spanish-speaking policyholders.

Martinez Fischer stopped working for the Mostyn Firm in 2010, Gomez and Mostyn both said.

Neither Hunter or Martinez Fischer was reappointed to the House Insurance Committee in February; Taylor and Eiland continue to serve.

House Speaker Joe Straus, R-San Antonio, didn't respond to requests for comment on those changes. (Taylor and Hunter remain on the Legislature's special windstorm oversight committee).

Insurance Committee Chairman John Smithee, R-Amarillo, said even he didn't know so many of his own committee members had such close dealings with TWIA — and he'd like to change that.

“There is a bit of a public perception problem when you have a quasi-state agency overseen by legislators and some legislators have involvements with it,” said Smithee, who filed a bill to overhaul TWIA last week.

“At the very least, you need total transparency, where the public can go and see what's going on with their officials, and perhaps have some prohibition of where a legislator could make money off of TWIA.”